Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on August 1, 2022 - August 7, 2022

CHEMICAL products distributor Hextar Global Bhd, the flagship company of Datuk Eddie Ong Choo Meng, is selling its manufacturing plant and the land on which it sits to KIP Real Estate Investment Trust (KIP REIT), in which Ong has a stake as well.

Hextar Global, which bought the land in Klang in October 2005 for RM12.58 million, will lease back the assets after the sale. The company explains that the RM27 million sale is to unlock asset value and reduce its funding requirements.

Nonetheless, Hextar Global’s asset sale is not that big a deal compared with that of its controlling shareholder Ong. The 44-year-old businessman is selling two industrial properties, namely warehouses and a factory, to KIP REIT for RM51.7 million cash. His original cost of investment was RM35.4 million.

While unlocking the value of his real estate assets, Ong has also raised his stake in Classic Scenic Bhd, a wooden picture frame mouldings maker. Last week, he bought 36 million shares, equivalent to a 14.94% stake, as well as 18 million units of warrants from Hextar Technologies Solutions Bhd (Hextar Tech), another listed company that he controls with a 71.48% stake. The block of shares and warrants changed hands at RM32.04 million (79 sen per share and 26 sen per warrant). The share purchase bumped up Ong’s shareholding to 32.06%.

He emerged as a substantial shareholder in Classic Scenic on March 17 last year, a day after Hextar Tech, then known as Complete Logistic Services Bhd, bought a stake in the company for RM29.34 million.

Ong had bought his stake in Hextar Tech on March 9 last year from founder, Law Hee Ling, and his family. Interestingly, on March 16, Hextar Tech announced that it had acquired a block of Classic Scenic shares.

At the same time, Classic Scenic’s founding Lim family’s investment vehicle Lim Ket Leng Holding Sdn Bhd sold 18 million shares in Classic Scenic and ceased to be a substantial shareholder, according to stock exchange filings.

Bloomberg data shows that Ong is the single-largest shareholder in Classic Scenic now, followed by Chin Hin Group Bhd’s executive chairman Datuk Seri Chiau Beng Teik, who holds a 4.95% stake, and his son, Chiau Haw Choon, who has 4.67%.

Classic Scenic’s earnings tumbles

Classic Scenic’s share price had been on a downtrend from the final quarter of 2017, when it was at above 70 sen, to March 2020, reaching slightly below 30 sen.

However, the stock staged a strong rebound in December that year, returning to the 70-sen level in the following three months. Soon after the rally, Ong and Hextar Tech bought the stock. The share price has been hovering between 65 sen and 80 sen since.

“The investment in Classic Scenic is liquid and allows Complete Logistics [now Hextar Tech] to have a substantial stake in [a] company that [has] been profitable since its listing in 2004 and recorded annual audited profit after tax of between RM6.25 million and RM13.28 million over the past five financial years,” Hextar Tech said in a filing on March 16, 2021, noting that Classic Scenic had a track record of declaring dividends of between three sen and 11 sen in the financial years since 2011.

Since 2018, Classic Scenic’s profit has been hit by a rise in costs, followed by the US-China trade war and the Covid-19 pandemic.

Classic Scenic attributed the 41% decline in net profit in 2018 to higher costs of timber and raw materials paint and lacquer, owing to higher crude oil prices. The manufacturer said labour costs were higher as well, as it needed to fully bear foreign workers’ levies.

The company’s net profit slipped to RM6.37 million in the financial year ended Dec 31, 2020 (FY2020) and RM6.41 million in FY2021.

Classic Scenic’s cash pile has shrunk from RM25.81 million as at Dec 31, 2020, to RM7.33 million at end-March this year.

Its latest cash flow statement for the quarter ended March 31, 2022, shows a net cash outflow of RM14.9 million to investing activities, driven mainly by the acquisition of property, plant and equipment. Its property, plant and equipment item on the balance sheet has grown to RM109.29 million, from RM48.31 million a year ago.

It will be interesting to see Ong’s next move after he has tightened his grip on Classic Scenic.

Hextar Tech pays bumper dividend

Although Ong has not disclosed his plans for Classic Scenic, one thing is certain: Next month, he will be receiving a big dividend cheque from Hextar Tech.

Back-of-the-envelope calculations show that he will receive RM13.98 million based on his direct 27.17% stake, or 34.95 million shares. Meanwhile, Hextar Tech investment vehicle Hextar Tech Sdn Bhd (HTSB) is expected to get a total dividend of RM22.80 million.

Roughly 10 months after he purchased the first block of 37.44 million shares in Hextar Tech, which was trading at RM2.52, Ong, through his vehicle HTSB, launched a voluntary takeover offer at RM2.50 per share in December last year. The takeover bid raised his shareholding in Hextar Tech to 73.42%.

Hextar Tech has yet to find its income-generating ICT business, which is part of its diversification plan, but its share price shot up to an all-time high of RM4.80 in early April. It retreated to RM3.63 on July 28, but is still 45% higher than the price offered for its takeover bid. In fact, the stock seldom traded above RM1 until Ong surfaced as a shareholder.

Earnings-wise, Hextar Tech posted net profit of RM12.87 million in the financial year ended March 31, 2022 (FY2022), a big leap from RM3.84 million in FY2021. Its revenue more than doubled to RM114.03 million from RM42.35 million in FY2021.

However, the net profit was mainly boosted by a one-off divestment gain of RM11.2 million. It sold two subsidiaries — Guper Resources Sdn Bhd and Ultra Trinity Sdn Bhd, both of which own land in Nilai — back to the Law family for RM22.45 million cash.

Hextar Tech is sitting on a large net cash pile after it sold its forwarding, haulage and warehousing business to COSCO Shipping International (Singapore) Co Ltd for RM85.6 million cash in December 2019.

When Ong bought into Hextar Tech, the company had cash and cash equivalents of RM49.68 million, including short-term investments of RM33.6 million, as at end-March 2021. The value of its short-term investments declined sharply from RM79.78 million a year ago.

Having said that, Ong’s own cash pile is likely to increase. He is expected to receive a total of RM65.68 million from the sale of his properties to KIP REIT and dividends from Hextar Tech. Likewise, his vehicle HTSB will be getting dividends of RM22.8 million from Hextar Tech.

KIP REIT caught Ong’s eye last year and he emerged as a substantial unitholder 10 months ago in September. The REIT will be undertaking a private placement to raise fresh funds to part-finance the purchase of the three industrial properties, including the two from Ong.

KIP REIT’s portfolio focuses on community-centric malls in populated suburban areas in Johor, Negeri Sembilan, Melaka and Selangor. The REIT estimates that the acquisitions should increase its gearing ratio to 39.1% from 37% as at end-June 2021.

Ong currently has a 20.09% stake in KIP REIT; his entry into the REIT came in conjunction with a series of shareholdings disposals by Datin Teoh Siew Chin, wife of the late Datuk Chew Lak Seong, managing director and co-founder of KIP REIT. Chew passed away in June last year, leaving Teoh the beneficiary of his units in the REIT.

As at April 22, Teoh still owned 34.35 million shares, or a 6.8% stake. KIP REIT’s other co-founder Datuk Ong Kook Liong divested a 7.3% stake in September last year; his shareholding stood at 12.94% as at June 24.

It is worth noting that KIP REIT seems to be among the best-performing REITs on Bursa Malaysia in terms of share price performance. The REIT has gained 25.6% since the beginning of 2021.

The REIT closed at 90.5 sen per unit last Thursday, a 12% increase year to date.

Ong has been active in the local corporate scene over the past few years, starting with his reverse takeover with his father, Datuk Ong Soon Ho of Halex Holdings Bhd, turning it into Hextar Global. He also ventured into various listed companies, such as SCH Group Bhd, which has been renamed Hextar Industries Bhd.

The businessman also made headlines with Chin Hin’s Beng Teik during the share price rally of Rubberex Corp (M) Bhd, which he bought into in 2020, just in time to ride the glove maker stock mania at the peak of the Covid-19 pandemic.

Rubberex is in the midst of diversifying into property investment, having taken up a 20% stake in Empire City Mall for RM180 million cash.

 

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